How to understand loans?

[lang]

So here's my specific situation. I have NEVER taken a loan for anything so I really lack an understanding of how it works. I have done research online and learned a lot but I know some of you guys are great at this.

 

So I have enough money in the bank to pay all the tuition for the first year and then some. My husband is able to work and pay for all our living expenses. So I really don't need money the first year. But I definitely won't have enough to pay for second year tuition and travel. Should I take the 20,500 in federal loans offered to me for this year and use it to help pay for second year so that I take out less in private loans? Also, you have to apply for private loans so they can see you credit score before you truly know the interest rate right?

 

I apologize if these questions seem ridiculous. I really have tried to do the research but I feel like experience is king in this matter. Also, can anyone tell me how they actually "do the math" so I can learn?

Thank you!!!

 

I forgot to add this (bc it affects the overall interest paid)

My husband and I have agreed that the first year I work, 100% of my income will go towards paying my loans off. Another reason private loans worry me is they may not let me pay back so quickly.

[benny32311]

I personally would take out a private loan to pay for school, when you need it. If you can cover your expenses for the first year, that's just less interest you are going to have to pay back. I would lean towards the private loans because, for example, my roommate is paying sub 4% interest on his private loan and I'm paying about 8% on my federal loan. That in and of itself will save him a good bit of money in paying back the loan. If you can get the interest free while you're in school loan (I forget the name), then take that one when you can get it, but I think that's usually only up to $10k/semester, and you have to be qualified for it. If you can get it, there is no accumulation of interest until you graduate from what I understand.

 

The reason I would wait to take it out is interesting accumulation. For example let's say that you take out $100,000 to pay for school at 10% interest/yr. After 2 years you will owe $121,000. Which breaks down this way.

Year 1 (100,000 * 1.1) = $110,000

Year 2 (110,000 * 1.1) = $121,000 - compound interest.

 

Instead if you just take out the loan the time you need it in this particular scenario you would save yourself about $11,000.

 

Yours and your husband's agreement is a good one and you should be able to pay off your debts very quickly.

 

If you have a financial adviser, someone who deals with your retirement and stuff like that, you can ask them to give what they would think is the best option.

[Medic207]

I would first make sure you have exhausted all your options before loaning anything.

 

Then only borrow money when the time comes for the second year. You don't need to take the federal backed loans the first year so don't. See how your doing after the first year and then apply for the federal loan only if you need it.

 

Lastly, remember that the federal student loan has provisions for deferment. Also if you were to die the loan would be forgiven. If you had a private loan they would likely come after your estate not to mention have higher rates.